PART 36 AND INTEREST ON DAMAGES: A REMINDER WHEN MAKING OFFERS

The position has been clarified and appropriately codified since 2021 to allow interest on damages on a claimant’s Part 36 offer, should it be accepted outside of the 21-day relevant period. Part 36 offers are now a more powerful tool for a claimant when looking to achieve a settlement, and getting the offer right continues to be all important.

The history

Before 2021, under the rules the claimant was entitled, upon judgement, to interest on damages through CPR 36.17 at a rate not exceeding 10% above base rate for some or all the period starting with the date on which the relevant period expired. This is all well and good if the claimant achieves at least as advantageous as their offer at trial, but not so good if the defendant decides to accept the offer the day before the trial or at any point after the end of the relevant period.

In the case of the latter, the claimant would under those rules not be entitled to interest on damages, despite the defendant accepting an offer late. The defendant would have to pay the claimant’s additional costs beyond the relevant period until acceptance, but the claimant would still achieve the same amount in damages as the offer. The date between the end of the relevant period and acceptance of the offer could be months or even years, and the defendant, therefore, faced no additional consequences in terms of paying damages. In effect, the claimant was penalised in these circumstances.

Further consideration of “at least as advantageous” is given in CPR 36.17 (2) to mean better in money terms by any amount, however small. In Shah and anor v Shah an anor [2021] EWHC 1668 (QB), £1 was sufficient. The claimant made a substantial claim, but was only awarded £10, but had made a Part 36 offer of £1 ostensibly to use the cost consequences of Part 36. The offer was valid. However, each case will turn on its own merits and the issue, in this case, was costs not damages.

The turning point

The ground-breaking case which shifted the balance back towards the claimant was Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 75. The starting point before this case was CPR 36.5 (4) which stated that offers will usually be treated as all-inclusive of interest until the relevant period expires. It was silent on interest after the end of the relevant period. In Colonne the defendant, bringing a counterclaim, expressly worded that their offer would accrue interest at a rate of 8% per annum after the end of the relevant period of the offer. Calonne argued it was not a valid Part 36 offer. The Court of Appeal found in favour of the defendant’s counterclaim and awarded interest at 8% on damages from the end of the relevant period until acceptance.

Asplin LJ made some helpful comments in the judgement. Notably (a) There is nothing in CPR Part 36 to preclude a term to include interest on damages and (b) If a party was not able to claim interest on damages from the end of the relevant period it would not be compensated with interest for the delay between the end of the relevant period and acceptance.

As a result of Calonne CPR Part 36.5(5) was amended in April 2021 to say “A Part 36 offer to accept a sum of money may make a provision for accrual of interest on such sum after the date specified in paragraph (4) (the relevant period). If such an offer does not make such a provision, it shall be treated as inclusive of all interest up until the date of acceptance.”

The sting in the tail is in the last sentence, that if the Part 36 offer does not expressly contain an interest provision after the end of the relevant period, then interest on damages is treated as being included in the offer.

The rate of interest claimed is not set and will be considered on a case-by-case basis. 8% – 10% interest has been reported in cases, but there is no reason why a higher amount cannot be claimed depending on the circumstances of the case. However, the higher the rate claimed the more open to arguments from a defendant that the offer is not valid. In Kivells Limited v Torridge District Council [2019] EWHC 3210 HHJ Russen QC said that in the circumstances of a late acceptance “the claimant may be awarded interest at a rate which proves to be more than compensatory. In modern times it might be said that the judgment rate of 8% produces at least in some cases an element of over-compensation. Whether or not that is so, I have concluded in this case that it is right to award the rate to the claimant for the period of its superior entitlement as if it was then entitled to a judgment rather than simply looking to the court’s discretion for recovery of a less generous commercial or compensatory rate over the pre-judgment period.”

In other words, 8% is intended as a punitive rate of interest in line with the judgment rate.

The top takeaways

• CPR 36.5 (5) allows for interest to be claimed on damages after the expiry of the relevant period until acceptance of the offer only if it is specifically set out in the terms of the offer.
• Form N242a does not presently contain such a provision and all Part 36 offers should therefore contain additional wording, either on the N242a or in the letter making the offer. Wording such as “From the end of the relevant period and until acceptance of the offer the claimant additionally claims interest on damages at 8% per annum.”
• The rate of interest is not fixed and should be considered on a case-by-case basis, for example, whether to claim 8% or a more substantial rate of interest.
• The claimant should be advised of this provision and that it may lead to a better award of compensation. Eg. If the claimant made an offer of £100,000 at 8% per annum interest, and the offer was accepted 1 year after the date of the end of the relevant period, they would be entitled to an additional £8,000. This benefit becomes more substantial with realistic early offers made to a defendant who is unwilling to enter negotiations.